Jerash Holdings Fiscal 2026 Q2 Earnings Call - Capacity Expansion and Demand Surge Amid Margin Pressure

Conference Operator: Good day, everyone, and welcome to the Duresh Holdings Fiscal twenty twenty six Second Quarter Financial Results. At this time, all participants are placed on a listen only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, Roger Pondell, Investor Relations. Sir, the floor is yours.

Roger Pondell, Investor Relations, Pondell Wilkinson: Thank you very much, Matt, and good morning, everyone. Welcome to Jerash Holdings fiscal twenty twenty six second quarter conference call. I’m Roger Pondell with Pondell Wilkinson, Jurash Holdings Investor Relations firm. On the call today from the company are Chairman and Chief Executive Officer, Sam Choi Chief Financial Officer, Gilbert Lee and Eric Tang, who leads the company’s operations in Jordan. Before I turn the call over to Sam, I want to remind our listeners that today’s call may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward looking statements are subject to numerous conditions, many of which are beyond the company’s control, including those set forth in the Risk Factors section of the company’s most recent Form 10 ks as filed with the Securities and Exchange Commission and copies of which are available on the SEC’s website at www.sec.gov along with other company filings made with the SEC from time to time. Actual results could differ materially from forward looking statements and Girash Holdings undertakes no obligation to update any forward looking statements except as required by law. And with that behind us, I will turn the call over to Sam Choi. Sam?

Sam Choi, Chairman and Chief Executive Officer, Jerash Holdings: Thank you, Roger. Despite ongoing trade uncertainties, we continue to experience robust and growing demand from our long standing customers and newly established strategic partners. Jordan is increasingly recognized as a preferred manufacturing hub for global brands seeking to diversify their supply chains beyond Asia. Apparel exports from Jordan to The United States and the current effective tariff rates of 15% remain significantly more favorable than other major sourcing countries where rates range from 20% to more than 60%. In addition, maintains free trade agreements with other key markets, including The EU, UK, and Canada.

Furthermore, Jordan’s labor framework, which enables manufacturers to contract skilled foreign workers, further enhances our production quality and operational efficiency. This labor flexibility, combined with favorable trade conditions, reinforces Jerash’s position as an attractive strategic sourcing partner for global brands navigating ongoing economic shifts. In late June, we successfully completed the expansion of our existing manufacturing facilities, increasing our production capacity by approximately 15%. This additional capacity was much needed to support growing demand from our global customers and strategic partners. Looking ahead, we are receiving continued requests for even greater capacity, which has prompted us to initiate a long term expansion plan.

This plan includes evaluating potential acquisitions and developing our own land. This initiative is designed to ensure that Juress remains well positioned to meet evolving market demand and sustain our competitive edge in the global apparel industry. As part of our ongoing strategy, we continue to successfully diversify both our customer base and product mix. This effort was aimed at enhancing year round production stability and reducing the impact of seasonality on our business. While we anticipate these changes will strengthen our long term growth, we do expect a slightly lower average gross margin in the near term.

As order volumes for our expanded product offerings continue to scale in the coming years, our goal is to gradually improve gross profit margins to approximately 20%. We expect to achieve this through increased production automation and the benefits of economies of scale. During this important period of progress for the company, we remain vigilant about the potential impact of regional geopolitical uncertainties and involving tariff developments. These factors are being closely monitored as we advance our growth strategy to ensure resilience and long term success. With that, I will now turn the call over to Eric, who is in charge of our operations in Jordan.

Eric Tang, Operations Lead in Jordan, Jerash Holdings: Thank you, Sam. As we have noted previously, we believe the recent shift in U. S. Tariff policy has accelerated the urgency with which businesses are looking to diversify their manufacturing footprint. And we are seeking ways to accommodate growing capacity demands.

We have successfully completed shipping the initial phase of the major collaboration order of more than 3,000,000 pairs of girl short from a strategic partnership with Hansel Textile, a leading South Korea based global apparel group that applies a wide range of garments to major international retail and fashion brands. Shipment of second phase is now scheduled to be completed by November. Production and shipments for the rest of the order are scheduled to continue through February 2026. We are actively collaborating with both Hansel and its customer, a leading US based multinational and omnichannel retail corporation to discuss additional scenarios and foster continued collaboration and growth together. Shipping logistics in the region have returned to normal.

Both the Haifa and Akerberg ports are fully operational for shipping finished goods and receiving raw materials. We are optimistic that the nearly two year period of transportation challenges is behind us, allowing us to resume uninterrupted logistic support for our global customers. We continue to receive new business inquiries and buyers from our major customers have submitted increased order projections for 2026. We are currently awaiting confirmation of purchase orders to begin planning production schedules beyond our current capacity, which is fully booked through February. These new opportunities reinforce our growth outlook and validate our strategy, focusing on diversifying both our customer base and product mix.

This approach enable us to optimize production capacity and drive stronger top line performance and margins throughout the year. As Sam mentioned earlier, we are looking at different ways to expand our production capacity. The current collaboration expansion with the Jordanian Ministry of Labor to develop an extension adjacent to our existing facility in Ahasar is in progress. Upon completion, which is now expected in the 2026 should add another 5% to 10% in total production capacity. Additionally, we are seeking other factory acquisition possibilities as well as development of our own land.

We look forward to keeping you updated of our progress. With that, I will now turn the call over to Gilbert to discuss our financial results. Gilbert, please.

Gilbert Lee, Chief Financial Officer, Jerash Holdings: Thank you, Eric. Revenue for the fiscal twenty twenty six second quarter grew 4.3% to $42,000,000 compared to $40,200,000 in the same quarter last year. The increase was primarily driven by higher shipment volumes to the company’s U. S. Customers, supported by a more diversified customer base starting this fiscal year.

Gross profit was $6,300,000 for the fiscal twenty twenty six second quarter compared with $7,100,000 in the same quarter last year. Gross profit margin for the quarter declined to 15% from 17.5% in the same quarter last year, which benefited from catch up production of some outerwear that carried higher margins originally scheduled for the 2025. The decrease was primarily driven by the diversification of broader customer base and a shift in product mix, which resulted in a lower average gross margin. Operating expenses decreased to $5,200,000 in the fiscal twenty twenty six second quarter from $5,900,000 in the same quarter last year. The decrease was primarily due to better control of export costs and lower stock based compensation expenses.

Operating income was $1,090,000 in the fiscal twenty twenty six second quarter, slightly lower than $1,130,000 in the same quarter last year. Total other expenses were $456,000 in the fiscal twenty twenty six second quarter compared with $364,000 in the same quarter last year, primarily reflecting the increase in financing needs to support business growth. Income tax expenses were $154,000 in the fiscal twenty twenty six second quarter compared with 106,000 in the prior year quarter. The effective tax rate increased to 24.3% for the three months ended 09/30/2025 compared with 13.7% in the same quarter last year. Net income was 479,000 or 4¢ per diluted share in the fiscal twenty twenty six second quarter compared with $665,000 or $05 per diluted share in the same quarter last year.

Comprehensive income attributable to the company’s common stockholder totaled $440,000 in the fiscal twenty twenty six second quarter compared with $663,000 in the same quarter last year. As of September 3025, Jiraj had cash and restricted cash totaled $13,700,000 and net working capital of 35,200,000.0 Inventory was $26,300,000 and accounts receivable amounted to $5,800,000 Net cash provided by operating activities was approximately $318,000 for the six months ended 09/30/2025 compared with cash provided by operating activities of approximately $2,400,000 for the same period in fiscal twenty twenty five. The decrease in net cash provided by operating activities was primarily driven by an increase in accounts receivable as a larger volume of goods was shipped towards the September, as well as advanced payments to suppliers for orders scheduled to be completed in the fiscal third quarter. On 11/07/2025, Jiraj’s Board of Directors approved a regular quarterly dividend of $05 per share on its common stock payable on 11/26/2025 to stockholders of record as of November 19. We’re enthusiastic about our business prospects and performance ahead.

As we look at the near term and implement our long term expansion plans. At the same time, we’re staying focused on cost controls and enhancing operating efficiencies. Looking ahead, we expect revenue for the fiscal twenty twenty six third quarter to increase by 19% to 21% over the same quarter last year. And our gross margin for the fiscal twenty twenty six third quarter is expected to be approximately 13% to 15%. We will now open up the call for questions.

And I will turn the call back to the operator.

Conference Operator: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you’re listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone.

Your first question is coming from Ryan Myers from Lake Street Capital. Your line is live.

Ryan Myers, Analyst, Lake Street Capital: Hey guys, thanks for taking my questions. First one for me, when we think about the revenue guide for the third quarter, is there any way you can break out how much of that is just coming from additional capacity that’s come online versus how much of that is just increased order flow and demand?

Gilbert Lee, Chief Financial Officer, Jerash Holdings: We really don’t break it down like that. I mean, our capacity overall has increased by about 10 to 15% over last fiscal year just by the expansion, our internal expansion, throughout the existing capacity by adding machineries and adding people. So that, amounts to about 15% increase in capacity. And then the rest of them would be increase in demand, increase in orders during the the third quarter. I mean, third quarter year to year comparison.

Ryan Myers, Analyst, Lake Street Capital: Okay. Makes sense. And then thinking about, you know, where the gross margins came in at and where you guys guided for the third quarter, and you said earlier on in the prepared remarks that the goal is to improve the gross margins of the business to 20% or so. So can you just walk us through, I mean, what needs to happen to get us from where we’re at now to this 20% gross margin? And then maybe if you can put some sort of a timeline or timetable on getting to those kind of 20% or so gross margins, that’d be helpful.

Gilbert Lee, Chief Financial Officer, Jerash Holdings: As Sam has indicated, in the near term, the gross margin will going to be still at a relatively flat or lower comparing to what we have been before because we’re taking on some new customers. Usually, when we take on new customers and the new styles and new ways of, making those products will cause us to be, a little bit less efficient. But at the same time, we’re also working on automating many of our production processes, also implementing e ERP system. But all this, will take a a while. So it is a long term goal that we get back to, about twenty percent in gross margin, but it it will take a few years.

Our goal is to get back there, with expansion, with increasing volume, and just by, economies of scale. And, eventually, probably after our five year plan, we will be able to gradually get back to about 20% gross margin.

Ryan Myers, Analyst, Lake Street Capital: Okay, got it. Thank you for taking my questions.

Gilbert Lee, Chief Financial Officer, Jerash Holdings: Sure.

Conference Operator: Thank you. Your next question is coming from Keegan Cox from Davidson. Your line is live.

Keegan Cox, Analyst, Davidson: Hi, guys. Keegan on for Mike Baker. Just had a question your Yes, I just had an inventory or an inventory related question. Inventory is up 30%. Is that, year over year, is that kind of a typical seasonal build?

Like, you usually work inventory down from 2Q to 3Q, at least from what I’m looking at. So if you can just give some context on that number, it would be great.

Gilbert Lee, Chief Financial Officer, Jerash Holdings: Well, the inventory is usually relatively higher in the what the the first quarter. And then, yeah, in second quarter, it will go down. But but this year is relatively it’s kind of different because we’re taking on a large volume customer, and we had to, we had to procure a lot more raw material to be ready for production during our traditionally slower season, which is the third quarter and the fourth quarter. But now we’re fully booked, and we anticipate to have a lot more production utilizing a lot more raw material and and supplies in the upcoming quarter.

Keegan Cox, Analyst, Davidson: Got it. And then just to follow-up on you talked about acquisitions or expansions in the press release and on the call so far. As you think about that, are you looking to acquire factories within Jordan? Or is there any possibility of expansion into other geographies?

Gilbert Lee, Chief Financial Officer, Jerash Holdings: As of now, our plan is more focusing on, our Jordan manufacturing base.

Keegan Cox, Analyst, Davidson: Perfect. Thank you.

Conference Operator: Thank you. Your next question is coming from Igor Novgorodovskoyev from Lares Capital. Your line is live.

Igor Novgorodovskoyev, Analyst, Lares Capital: Hello, and thank you for taking my questions. So my first question is about your expansion. Maybe you can provide a little bit more details of who are the customers for whom you’re expanding. Are these the new customers mostly or these existing customers which you already have which shifted the volume, to Jordan or to your factories?

Gilbert Lee, Chief Financial Officer, Jerash Holdings: Well, we, we received increasing, orders and increasing projections from our existing customer as well as new customers and potential new customers that are just coming here, coming to our to our company and ask for ways of collaborations. So, our existing customer, as you know, North Face, New Balance, they they are all increasing, what they want to do, in Jordan. So on that end, we we will try to continue to gradually grow with those existing legacy customers. But the new customers like Hansel, which is the the Korean based retail the Korean based manufacturer that that they just started doing business with us, but the the potential is is huge. Like Eric said, we just finished the first phase of the production of three point some million, pieces of, girl shorts, and we’re getting we’re still getting new orders from them.

So the increase or the expansion plan is really for all the existing customer, the new customer that we have onboarded in the past year or months, as well as new customers that we’re that we’re still, working with. So the demand is is definitely, real, and and we’re seeing it in the next few years. So that’s why now we’re really focused on, developing our long term, strategic growth plan. And we will, we will make announcements about our growth plan in the in the upcoming months. But as of now, we’re still in the development stage.

And once our board approved it, then we will, then we will disclose that to everybody.

Igor Novgorodovskoyev, Analyst, Lares Capital: Also, if you can just give me a sort of a snapshot of a pre tariff versus post tariff abroad. Obviously, a lot of things has changed in The United States. The customers which are coming to you now, where are they coming from? So you just mentioned Asia, but what specific countries? Is it just China, or this is also like Vietnam and Bangladesh?

If you can just give us, some better idea, where is that coming from? Where is it reducing their footprint and growth to expand, at your factories?

Gilbert Lee, Chief Financial Officer, Jerash Holdings: Well, we have new customer. Well, Hansel, even though they’re based in South Korea, they’re supplying The US. So we’re still producing in Jordan and shipping products to The US. That’s why the advantage for us is because we have lower tariff rates, for shipping to The US comparing to manufacturers in China, in Asia. So that’s why everyone is, focusing on coming to Jordan.

And at the same time, we’re also growing our, our shipping to Europe because we have zero tariffs, zero duty for shipping to The EU. So our business to, to Europe is also growing rapidly.

Igor Novgorodovskoyev, Analyst, Lares Capital: Okay. And in fact And

Gilbert Lee, Chief Financial Officer, Jerash Holdings: oh, please go ahead. Sorry. Yeah. Eric, you wanna Yeah. In fact,

Sam Choi, Chairman and Chief Executive Officer, Jerash Holdings: to our understanding, I mean, the customer would like to ship some of their orders from China or even India because Indian tariffs, the reciprocal tariff to The USA has been increased substantially. Some so so I mean, some orders, according to our understanding, were shifted, from China and India.

Gilbert Lee, Chief Financial Officer, Jerash Holdings: Yeah.

Igor Novgorodovskoyev, Analyst, Lares Capital: Okay. So my last question is about your q four. Q four traditionally has been a weak quarter for you because, there’s just not a lot of orders, you took up on, like, local orders. So I understand that this q four is looking, quite a bit different, better, basically. So you can just maybe tell me a little bit about, I understand you didn’t provide the guidance yet for q four, but maybe at least qualitatively, how is this q four gonna be different from q four, last couple of years?

Gilbert Lee, Chief Financial Officer, Jerash Holdings: Yeah. This year is going to be different. I mean, you’re right. In the past, we’re quite seasonal, and it’s the first half of the year usually has a a much higher sales than the second half. But this year, it’s going to be quite similar.

The second half of the year will be quite similar to the first half. It’s not still not as high as the first half, but as Eric had indicated, we our capacity is fully booked through the February, and our year end is March. So it is it is likely that that our q four would be still a pretty good quarter.

Igor Novgorodovskoyev, Analyst, Lares Capital: Okay. Thank you.

Gilbert Lee, Chief Financial Officer, Jerash Holdings: Thank you. Thank you. You’re welcome.

Conference Operator: That concludes our Q and A session. I’ll now hand the conference back to CEO, Sam Choi, for closing remarks. Please go ahead.

Sam Choi, Chairman and Chief Executive Officer, Jerash Holdings: Thank you, operator, and thanks to all of you for joining us today. Our business is clearly moving in the right direction. We appreciate your continued support and interest in Juresh and look forward to speaking with you soon about our progress. Thank you all of you.

Gilbert Lee, Chief Financial Officer, Jerash Holdings: Thank you.

Conference Operator: Thank you.

Sam Choi, Chairman and Chief Executive Officer, Jerash Holdings: Everyone

Conference Operator: concludes today’s event.